GORDON AND EDELMAN JJ. The appellant, Mr Boris Rozenblit, brought proceedings in the Supreme Court of Victoria against the respondents. By three separate summonses, Mr Rozenblit sought leave to amend his statement of claim. Leave was twice refused and resulted in orders that the respondents' costs be taxed immediately. Subsequently, orders were made, by consent, to fix the costs, without the need for taxation ("the Costs"). The Costs were never paid.
On the third occasion that Mr Rozenblit sought leave to amend his statement of claim, the respondents sought to have the proceeding stayed under r 63.03(3)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ("the 2015 SCR"), pending payment of the Costs. Rule 63.03(3)(a) empowers the Court to stay a proceeding where the Court has made an interlocutory order for costs to be taxed immediately, and those costs have been fixed, but remain unpaid. Mr Rozenblit's third application for leave to amend was granted on condition that the proceedings be stayed until Mr Rozenblit paid the Costs.
This appeal concerns the exercise of the discretion under r 63.03(3)(a) of the 2015 SCR. The question is whether, in the particular circumstances of this proceeding, it was open for the Court to permit Mr Rozenblit to amend his claim but on condition that the proceedings were stayed until he paid the Costs. As will be seen, the discretion miscarried. The Court could not be satisfied that granting a stay of the proceedings pending payment of the Costs was the "only practical way to ensure justice between the parties".
Legislative framework and applicable principles
It is important to recall that the default position on the question of costs is to be found in r 63.20.1 of the 2015 SCR: if an order for costs is made on an interlocutory application or hearing, the party in whose favour the order is made shall not tax those costs until the proceeding in which the order is made is completed, unless the Court orders that the costs may be taxed immediately.
Rule 63.03(3)(a) then provides:
"Where the Court makes an interlocutory order for costs, the Court may then or thereafter order that if the party liable to pay the costs fails to do so -
(a) if that party is the plaintiff, the proceeding shall be stayed or dismissed".
The discretion in r 63.03(3)(a) is not exercised at large. It is to be exercised by reference not only to the applicable legislative framework but also to its broader context and purpose.
The applicable legislative framework includes the 2015 SCR, the Supreme Court Act 1986 (Vic) ("the Supreme Court Act") and the Civil Procedure Act 2010 (Vic) ("the CPA Vic"). A proceeding to which the 2015 SCR apply must, despite anything in the Supreme Court Act or any other Act, be commenced and conducted in accordance with those Rules and not otherwise.
The power under s 25 of the Supreme Court Act to make the 2015 SCR includes the power, amongst others, to make rules "furthering the overarching purpose" set out in the CPA Vic and the conduct of civil proceedings in accordance with the principles set out in the CPA Vic.
The CPA Vic, enacted in 2010, applies to all civil proceedings in Victoria subject to some specified exceptions which presently may be put to one side. The overarching purpose of the CPA Vic, and of the 2015 SCR, is to "facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute".
In making any order or giving any direction in a civil proceeding, a court shall further that overarching purpose by having regard to, amongst other things, the just determination of the civil proceeding, the efficient conduct of the business of the court, the efficient use of judicial and administrative resources and the timely determination of the civil proceeding.
Part 4.5 of the CPA Vic addresses the court's powers as to costs. Section 65C, in that Part, relevantly provides that:
"(1) In addition to any other power a court may have in relation to costs, a court may make any order as to costs it considers appropriate to further the overarching purpose.
(2) Without limiting subsection (1), the order may -
(a) make different awards of costs in relation to different parts of a proceeding or up to or from a specified stage of the proceeding;
(b) order that parties bear costs as specified proportions of costs;
(c) award a party costs in a specified sum or amount;
(d) fix or cap recoverable costs in advance."
An order under s 65C(1) may be made at any time in a proceeding and in relation to any aspect of a proceeding, including, but not limited to, any interlocutory proceeding.
Section 65E relevantly states that nothing in Pt 4.5 limits any power the Supreme Court may have to award costs in a proceeding under s 24 of the Supreme Court Act or any rules of the Court, limits the Supreme Court's inherent jurisdiction, implied jurisdiction or statutory jurisdiction or limits any other powers of the Supreme Court or any other court arising or derived from the common law or under any other Act, rule of court, practice note or practice direction.
As is apparent, the 2015 SCR are influenced by, and to varying degrees restate, the characteristics of the Court's inherent power to stay or dismiss a proceeding. It is therefore necessary to say something about that inherent power that the courts retain to stay or dismiss a proceeding for abuse of process. The principles relating to the inherent power inform not only the content but also the proper construction of the 2015 SCR, including the construction of r 63.03(3)(a).
What amounts to abuse of process for the purposes of the inherent power is not restricted to "defined and closed categories". In Cox v Journeaux [No 2], Dixon J described the limits on the inherent power as follows:
"The inherent jurisdiction of the Court to stay an action as vexatious is to be exercised only when the action is clearly without foundation and when to allow it to proceed would impose a hardship upon the defendants which may be avoided without risk of injustice to the plaintiff. The principle, in general paramount, that a claim honestly made by a suitor for judicial relief must be investigated and decided in the manner appointed, must be observed. A litigant is entitled to submit for determination according to the due course of procedure a claim which he believes he can establish, although its foundation may in fact be slender. It is only when to permit it to proceed would amount to an abuse of jurisdiction, or would clearly inflict unnecessary injustice upon the opposite party that a suit should be stopped."
Cox was primarily concerned with whether to allow a claim to proceed when the claim was without merit. Subsequent cases, adopting Dixon J's statement, have observed that references to this passage of Dixon J's reasons, or to similar passages from other cases, were not intended to question the extent of the inherent power of the courts to grant a stay of proceedings in the interests of justice; rather, those references merely emphasised the gravity of an exercise of the power to grant such a stay.
As this Court has said, the power to grant a stay exists to enable a court to "protect itself from abuse of its process thereby safeguarding the administration of justice". The power can be exercised at any time from the institution, and until the conclusion, of proceedings. The injustice may arise from the taking of steps, or the failure to take steps, as well as delay, in the conduct of the proceedings. And the injustice may "transcend the interest of any particular party to the litigation".
The powers to stay a proceeding, or to dismiss a proceeding without trial, are both powers which, if exercised, in one way or another "deny justice to the party affected and ought not to be employed unless it is the only fair way of protecting the interests of the party seeking such an order" (emphasis added).
In Batistatos v Roads and Traffic Authority (NSW), this Court reinforced, and restated, what Dixon J had said in Cox: that only if the proceeding would amount to an abuse of jurisdiction, or would clearly inflict unnecessary injustice upon the opposite party, should a proceeding be stayed or dismissed.
Dixon J's statement in Cox was adopted and followed by the Court of Appeal of the Supreme Court of Victoria in Gao v Zhang in considering the exercise of power under r 63.03(3) of the Supreme Court (General Civil Procedure) Rules 1996 (Vic), which was in materially identical terms to the current rule.
Ormiston JA (with whom Vincent JA agreed) recognised that unless the purpose of an order granting a temporary stay was to "force a wealthy, or at least not impecunious, but recalcitrant litigant to pay … then the power should be treated as one which will have the effect of bringing to an end litigation without the benefit of a trial to which a litigant is ordinarily entitled".
His Honour cautioned that orders staying proceedings where there are outstanding costs orders should ordinarily be made only in extremely limited circumstances, namely where "the court believes or at least has reason strongly to suspect that the party refusing to pay the orders for costs is being recalcitrant and will in fact pay the order if it is forced to do so" (emphasis added). As his Honour said, "[i]f a party is clearly shown to be impecunious, then a court cannot act to grant even a temporary stay order under r 63.03(3) except upon the understanding that it will thereby be bringing the litigation effectively to an end".
His Honour added that the reason for making such an order must be serious and the making of the order must be "essentially the only practical way to ensure justice between the parties". In that sense, his Honour considered that for an order to be made in circumstances where there is an impecunious plaintiff, there "must be seen to have been some conduct on the part of the party in default which falls for condemnation to the extent of making so draconian an order".
Batistatos, like Gao, recognises that in the exercise of the power to stay a proceeding - regardless of whether that power appears in a specific rule or is to be found in the inherent power of the court - it is necessary to have regard to the consequences of such an order. The consequence of a stay, whether a permanent stay or even a seemingly temporary stay, is serious; it "shuts a party out of court". That consequence demonstrates the gravity of an exercise of the power, and the need for the existence of proper grounds for its exercise. Proper grounds include, but are not limited to, the institution of proceedings for an improper purpose, as well as proceedings that are frivolous, vexatious or oppressive. It is unnecessary and undesirable to lay down a hard and fast definition as to what constitutes proper grounds.
The overarching purpose of the CPA Vic, and the obligation for a court to give effect to and further that overarching purpose, reinforce that the power exists to enable a court to protect itself from abuse of its processes in order to safeguard the administration of justice, and that that purpose may "transcend the interest of any particular party to the litigation".
The CPA Vic requires the court to "facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute". In making any order, the court is to further that overarching purpose by having regard to, amongst other things, the just determination of the civil proceeding, the efficient conduct of the business of the court, the efficient use of judicial and administrative resources and the timely determination of the civil proceeding.
In modern litigation, not only must the court seek to give effect to, and further, the overarching purpose, but overarching obligations imposed by the CPA Vic also apply in all civil proceedings and throughout the conduct of proceedings, to each party, to each legal practitioner, to each law practice and to certain third parties who fund the proceedings. Each of those participants must comply with the overarching obligations, so as to "facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute". Those obligations include a requirement to cooperate in the conduct of civil proceedings and to ensure costs are reasonable and proportionate.
The overarching obligations do not displace the need for the court to safeguard the administration of justice in the context of ordering a stay for abuse of process. Rather, the obligations recognise that passive participation in litigation is no longer an option. There has been a "culture shift". It is therefore not surprising that in the conduct of modern litigation, there may well be circumstances where the granting of a stay is the only practical way to ensure justice between the parties even though the conduct was not intended to be oppressive. This does not displace or alter the primary consideration of the courts to safeguard the administration of justice. Rather, it underscores that considerations of efficiency and cost are relevant aspects of the inquiry. With those considerations in mind, it is necessary to assess what occurred in this litigation and, especially, to address the particular disputed issue that was before the Court - the third application for leave to amend the statement of claim.
History of the litigation
Mr Rozenblit was born in 1931 in the former Soviet Union, now Ukraine. He migrated to Australia in 1994. He lives with his wife in government housing. Neither he nor his wife has any appreciable assets. Their sole income is from Centrelink and a smaller pension from Russia.
In 2006, Mr Rozenblit and the first respondent, Mr Michael Vainer, entered into an oral agreement and a written Heads of Agreement to jointly develop and commercialise tyre recycling technologies. Mr Rozenblit alleged he invented the technologies.
The VR Tek Unit Trust was established in 2006, pursuant to the Heads of Agreement. VR Tek Global Pty Ltd was incorporated in 2009. Mr Rozenblit held units in the Trust and shares in VR Tek Global. VR Tek Global was placed into voluntary liquidation in November 2012.
By a writ and statement of claim filed in the Supreme Court of Victoria on 23 December 2013, Mr Rozenblit alleged, relevantly, that his shares in VR Tek Global were transferred to the second respondent, Mr Alexander Vainer (the first respondent's father), fraudulently and without Mr Rozenblit's knowledge, approval or consent and for no consideration.
After pleadings had closed, Mr Rozenblit sought leave to amend his statement of claim.
On 29 August 2014, Mr Rozenblit filed his first summons seeking leave to amend his statement of claim in order to, among other things, insert new causes of action arising from the liquidation of VR Tek Global, the thrust of which was that the respondents were not authorised to place VR Tek Global into voluntary liquidation. Five iterations of a proposed amended statement of claim were served on the respondents prior to the summons being returned. Leave to amend was refused by Lansdowne AsJ on 20 October 2014 and her Honour ordered that the costs be taxed immediately. Costs were subsequently fixed, by consent, in the sum of $22,000 on 15 December 2014.
On 10 November 2014, Mr Rozenblit filed a second summons seeking leave to file and serve an amended statement of claim. Leave was refused by Lansdowne AsJ on 24 June 2015 and her Honour ordered that costs be taxed immediately. Costs were subsequently fixed by consent in the sum of $28,000 on 12 August 2015.
On the third occasion that Mr Rozenblit sought leave to amend his statement of claim, the respondents sought to have the proceeding dismissed or stayed under r 63.03(3)(a) of the 2015 SCR, pending payment of the costs fixed on 15 December 2014 and 12 August 2015, namely the Costs.
Before Lansdowne AsJ, Mr Rozenblit provided sworn evidence that he was unable to meet the Costs due to his limited means. He was not cross‑examined.
Lansdowne AsJ accepted that Mr Rozenblit's attempts to amend his statement of claim were genuine and went to the heart of the case he wished to bring. Her Honour found that there was no evidence that Mr Rozenblit's intention was to harass or vex the respondents by his applications or the way he had conducted the proceeding.
Importantly, Lansdowne AsJ also found that Mr Rozenblit was so impecunious that a stay of the proceeding until payment of the Costs would effectively terminate the proceeding and "prevent [Mr Rozenblit] from litigating his claims entirely", and that the respondents were not so seriously financially prejudiced that the refusal of a stay would prevent them defending the claims.
Lansdowne AsJ stayed the proceeding until Mr Rozenblit paid the Costs and further ordered that, on payment of those Costs, Mr Rozenblit had leave to file and serve his amended statement of claim.
Lansdowne AsJ considered herself bound to apply the principles set out by the Court of Appeal of the Supreme Court of Victoria in Gao in the exercise of the discretion under r 63.03(3), and considered that Gao set down "two essential requirements" that must be met for the exercise of the power. First, the reason for the exercise of the power to stay the proceedings must be "serious" and the exercise of the power the "only practical way to ensure justice between the parties" and, second, there must have been some "conduct on the part of the party in default which falls for condemnation to the extent of making so draconian an order" in addition to the non‑payment of costs.
As noted earlier, her Honour considered that Mr Rozenblit's attempts to amend his statement of claim were genuine and went to the heart of the case he wished to pursue. Her Honour acknowledged that there was no evidence that Mr Rozenblit's intention was to harass or vex the respondents.
However, her Honour considered that Gao did not require the party seeking the stay to show "intentional harassment or conduct amounting to contemptuous disregard of court orders". Rather, the conduct needed to be such that it would fall for condemnation as a consequence of the manner of its exercise, or its result, not its intention. As a result, her Honour concluded that Mr Rozenblit's conduct required condemnation, irrespective of his genuine desire to expand the scope of his claims.
This conclusion was as a result of, among other things, three factors: first, the sheer number of applications for leave to amend made by Mr Rozenblit and the number of iterations of amendments within each of those applications, without proper explanation; second, Mr Rozenblit's almost "wanton disregard" for the prejudice suffered by the respondents; and third, the substantial delay occasioned by the applications.
As to the exercise of power being the only practical way to do justice between the parties, her Honour considered that there were a number of significant factors that weighed against the exercise of the power, including that a stay of the proceedings would effectively terminate the proceedings and prevent Mr Rozenblit from litigating his claims, and that there was no evidence that the respondents' financial position would have prevented them from conducting their defence. Lansdowne AsJ also considered the financial disparity between the parties to be relevant in circumstances where it was alleged that the respondents' conduct had resulted in Mr Rozenblit being excluded from the commercialisation of his invention.
However, on balance, her Honour concluded that these factors did not outweigh the need to grant a stay to do justice between the parties. Her Honour identified five factors in support of that conclusion. First, Mr Rozenblit had clearly funded his case to that point. Her Honour considered it "not just" for Mr Rozenblit to call on his, possibly undisclosed, resources for the conduct of his case but fail to use them to meet his obligations to the respondents. Second, the sum outstanding - $50,000 - was "not inconsiderable". Third, even if the non‑payment of costs would not prevent the respondents from conducting their case, the risk of continued delay would impact them. Fourth, Mr Rozenblit gave no indication of a way to pay the Costs other than through the fruits of the litigation (were he ultimately successful). Fifth, Mr Rozenblit's attitude in refusing to pay the Costs was an "indignant assertion of his own rights, with cavalier disregard for the rights of the [respondents]".
As already noted, Lansdowne AsJ ordered that the proceeding be stayed until Mr Rozenblit paid the Costs. Her Honour considered that leave to amend the statement of claim was justified in the circumstances, but that it would not be just to all of the parties to make the amendment conditional upon the payment of the Costs, as this would leave Mr Rozenblit the option of refraining from amending his statement of claim, leaving the Costs unpaid. Therefore, instead, her Honour ordered that first the Costs must be met and only thereafter could Mr Rozenblit amend his statement of claim.
On appeal to a single judge of the Supreme Court, Cameron J held that Lansdowne AsJ had not fallen into error in the test that she applied.
Mr Rozenblit appealed to the Court of Appeal of the Supreme Court of Victoria. One of his appeal grounds was that Lansdowne AsJ had failed to apply the so-called "basal principle" (as Ormiston JA in Gao described it) said to derive from the reasons of Dixon J in Cox. That "basal principle" was said to be to the effect that a suit should only be stayed when to permit it to proceed would amount to an abuse of jurisdiction or would clearly inflict unnecessary injustice upon the opposing party.
The plurality (Whelan and McLeish JJA, Kyrou JA delivering short concurring reasons) observed that it would be wrong to read the "basal principle" from Cox as imposing some stricter test than Gao, which it considered the leading authority. Instead, their Honours observed that "[i]n each case, it is apparent that the interests of justice require that the exercise of the power be a last resort". The plurality also recognised that the grant of a stay where there is an impecunious plaintiff is an extreme case in which the dispute is not resolved but suspended and, accordingly, such an order should only be made "when there is no other fair and practical way of ensuring justice between the parties".
The plurality then went on to summarise what it considered to be the principles relevant to the power to order a stay under r 63.03(3), in the following terms:
"(a) a stay for failure to satisfy an order for costs in an interlocutory matter may only be ordered if it is the only fair and practical way of facilitating the just, efficient, timely and cost-effective resolution of the proceeding;
(b) justice between the parties requires regard to be had to the interests of the party in whose favour the costs were ordered to be paid;
(c) the parties' conduct of the proceeding to date, and in particular the reasons for which costs were ordered to be taxed immediately, are relevant to the exercise of the power;
(d) a stay should not be ordered unless the conduct of the party in default warrants the condemnation inherent in such an order;
(e) the power is not to be used simply as a means of enforcing payment of the costs in question unless there are grounds for concluding that the party in default is recalcitrant and is capable of remedying the default." (emphasis added)
As the plurality stated, the question the Court was required to ask itself, and answer, was whether, in the circumstances of the case, there was no other fair and practical way of ensuring justice between the parties than granting a stay of the proceedings.
The Court of Appeal concluded that there was no other way to do justice between the parties. That was an error. What was missing from the formulation of principles (although it was acknowledged elsewhere) was consideration of the fact that a stay would have the effect of permanently halting Mr Rozenblit's claim.
Two applications
Lansdowne AsJ had two applications to hear and determine: Mr Rozenblit's third application for leave to amend his statement of claim and the respondents' application for a stay or dismissal of the proceedings for non‑payment of the Costs. The two applications were heard at the one time. That is not surprising. But each application raised different considerations.
The first question was whether Mr Rozenblit was to be granted leave to amend his statement of claim. It was common ground that, at the time of the application, Mr Rozenblit had a genuine claim, properly pleaded.
If, as it would appear from the reasons for judgment, Lansdowne AsJ had taken the view that there were discretionary reasons to provide leave to amend only on condition, then in order not to shut Mr Rozenblit out of making his claim, one course would have been to grant leave on terms that the costs thrown away by the amendment the subject of the third application be paid. Of course, they are not the Costs. They are different costs, incurred at a different time and not the subject of any previous interlocutory costs order.
Consideration and resolution of the summons for leave to amend did not and does not address the respondents' summons for a stay or dismissal of the proceeding pending payment of the Costs. There is no dispute that the application by the respondents for an order under r 63.03(3)(a) could be made. The question was whether, in the circumstances just outlined, it was open to the Court to exercise its discretion and dismiss or stay the proceeding. In short, it was not.
Mr Rozenblit's evidence to the effect that he did not have the means to pay the Costs was not contested. The effect, in those circumstances, is that a stay would bring the proceedings to an end, proceedings where Mr Rozenblit had a genuine claim that was properly pleaded. It was neither found, nor even alleged, that Mr Rozenblit's case amounted to an abuse of jurisdiction. Indeed, Lansdowne AsJ considered that Mr Rozenblit's attempts to amend his statement of claim were genuine, and went to the heart of the case he wished to bring. The case was not conducted in a manner amounting to harassment or for a collateral purpose. And there was no evidence that Mr Rozenblit's intention was to harass or vex the respondents by the applications that he made.
There was also no evidence that the respondents were so seriously financially prejudiced that the refusal of a stay would prevent them from defending the claims.
The court's task in considering what is necessary to ensure that there is "justice between the parties" is both retrospective and prospective. The court must assess the likely conduct of the parties, and any injustice that may arise if the matter were to proceed, rather than solely the past conduct that could be said to fall for condemnation. That is not to say that there will not be circumstances in which the historical conduct of a party demonstrates to the court that the proceeding is an abuse of jurisdiction or would inflict injustice. Gao is one such example: the plaintiff's conduct was clearly in the nature of "harassment" as a consequence of numerous interlocutory applications, each addressing very minor procedural matters and having relatively little merit.
That is not the position here. Mr Rozenblit's conduct - although undesirable, and the cause of delay and frustration to the Court and the respondents - cannot be said to provide any foundation for a finding that he was pursuing a frivolous or vexatious claim, or that the respondents would suffer unnecessary hardship if the proceedings continued.
The fact that r 63.03(3) only arises for consideration once the Court has already decided that a party's conduct justifies an order that interlocutory costs be taxed immediately does not change the Court's task. The fact that the Court had previously been willing to order that interlocutory costs be taxed indicates unsavoury conduct. But the grant of a stay does not necessarily follow such an order.
The Court, when considering an application for a stay, must decide afresh (as part of considering whether to exercise the discretion to grant the stay) whether the conduct of an impecunious party is so extreme as to justify bringing the proceedings to an end, and whether so ending the claim is the only way to do justice between the parties. The effective end of a proceeding is a far more significant consequence for a party than an order that interlocutory costs be paid forthwith.
It follows that the conduct justifying the grant of a stay will necessarily be more worthy of condemnation than the conduct justifying the making of an interlocutory costs order to be paid forthwith. While historical conduct may assist the Court's inquiry, it does not necessarily provide a final answer.
In this case, the grant of the stay has prevented Mr Rozenblit from pursuing a claim honestly made. There were insufficient grounds for such an order. The result was not the only fair and practical way to ensure justice between the parties.
Conclusion and orders
For the foregoing reasons, the appeal should be allowed. The orders of the Court should be: